With the November COP26 meeting in the rear-view mirror and a new year ahead, boards find themselves at a climate-reporting crossroads. The questions of “What happened?” and “What does this mean for business?” have turned to “What do we do now?”
Many of the focus areas of COP26 will place immediate and long-term demands on how businesses operate, including decarbonization, clean energy transitions, climate regulations, sustainable finance and reporting requirements, and more. Meanwhile, climate’s scope is expanding into new areas, incorporating the supply chain and asking more questions about associated risks, as well as resilience.
On the precipice of these changes, a few questions loom large. Does your board have the data, technology and internal resources required to meet upcoming mandates? Are legacy systems equipped to keep up with change — and stakeholder expectations?
To answer questions like these and determine your board’s COP26 readiness for the new year, here are three places to start.
Tracking and monitoring: Collecting more — and new types of — data
“We are living in the age of stakeholder capitalism, and this requires new approaches, and it particularly requires new measurement systems.”
- World Economic Forum Executive Chairman Klaus Schwab
While most boards have had their company’s direct environmental effects on their radar in recent years, COP26 ups the ante for data collection.
For starters, COP26 marks escalation of Scope 3 emission tracking from a “nice to have” to a “must have.” It’s the first explicit plan at a COP conference to reduce the use of coal. The plan, along with the deforestation pledge, heightens scrutiny on emissions generated within a company’s supply chain and pertains to purchased goods and services, business travel and employee commuting, waste disposal, use of sold products, transportation and distribution (up and downstream), investments, leased assets and franchises.
Is your company collecting data in these new areas of scrutiny? How well are your suppliers meeting their climate targets?
Furthermore, COP26 marked a milestone in the intersection between ESG and DEI. The conference devoted a full day to gender equality, with nations from Bolivia to Nigeria, Ecuador to Germany committing to further the full, meaningful and equal participation of women in climate action and gender-responsive climate solutions.
Gender equity is just the beginning of these expectations. Stakeholders want to see diverse groups, including people and young people, involved in designing and implementing climate action. How well is your company tracking ethnic and intergenerational equity in its climate efforts?
Keeping up with climate’s increasingly intersectional purview requires internal data from a vast and expanding array of systems. It also demands timely information from external sources, such as government priorities, pending legislation, public concerns, and stakeholder sentiments.
Do you have an internal structure for collecting key data and then measuring, analyzing and reporting on environmental impacts?
Does this system integrate with partners and third-party datasets?
Does it all flow into a central location where it can be meaningfully managed?
COP26-related data is just one of several new information-gathering mandates. In the next few years, boards will also need to oversee tracking and monitoring related to the Paris Rulebook, the Sustainable Finance Disclosure Requirement, the EU Taxonomy and beyond: climate change and adaptation, pollution prevention and control, the sustainable use and protection of water and marine resources, the protection and restoration of biodiversity and ecosystem and the transition to a circular economy.
Reporting: Keeping stakeholders from Goldman Sachs to Gen Z apprised of progress
“COP26 has unleashed a wall of new private sector money,” Gregory Barker, executive chairman at energy and aluminum company En+ Group, told Reuters. “For business everywhere, one thing is certain, big change is coming and coming fast.”
Attracting this wave of investment will require transparent, accurate disclosures that align with key reporting standards.
“Labels like ‘green’ or ‘sustainable’ say a lot to investors. Which data and criteria are asset managers using to ensure they’re meeting investors’ targets — the people to whom they’ve marketed themselves as ‘green’ or ‘sustainable’?” U.S. Securities and Exchange Commission Chair Gary Gensler said in a summer 2021 webinar leading up to COP26.
But the and Franklin of the world aren’t the only boards must keep on their climate reporting radars. COP26 specifically “recognizes the important role of non-Party stakeholders, including civil society, peoples, local communities, youth, children, local and regional governments and other stakeholders, in contributing to progress towards the goals of the Paris Agreement.”
“My goal in Glasgow was to find out whether intersectional environmentalism was actually embedded into the climate conversation after the ‘racial awakening’ of 2020,” said American environmentalist Leah Thomas, who attended the conference. “What would it ultimately mean for me to have a seat at this table as a Black environmentalist? And most important, I wanted to know: Could a conference truly pave the way for the immediate climate action we so desperately need?”
Businesses will need to engage closely with an expanding array of stakeholders on climate — conveying the organization’s principles and progress towards climate goals, seeking feedback and building initiatives that directly involve these groups.
Does the board have timely information at its fingertips about COP26 issues?
Are systems equipped to incorporate COP26 measures into 10-K filings and other reporting?
Does outreach on climate progress include peoples, local communities and governments, youth and other traditionally underrepresented groups?
Strategic planning: Connecting the dots, from risk to strategy
“The agreement — although not legally binding — will set the global agenda on climate change for the next decade.”
Disclosures on Scope 3 emissions and in 10-K financial filings are just the beginning of COP26’s heightened requirements. Regulators might also require companies to disclose how they would adapt to a range of potential physical, legal, market and economic scenarios.
Moreover, nations’ COP26 commitments will impact how businesses operate and plan, affecting the availability of sustainable investments, accelerating shifts away from fossil fuels, reversing deforestation, prompting cuts in methane emissions and more.
Most boards are not prepared. In a recent PwC survey, only one out of four (25%) respondents said their board understands ESG risks very well, even as more than half (54%) recognized that ESG issues have a financial impact on company performance.
As the commitments and broader outcomes of COP26 unfold, the organizations that pay attention to emerging trends and adapt accordingly will have an advantage. Moreover, reducing supplier emissions to meet the increasingly rigorous requirements of stakeholders, investors and regulatory bodies requires a multi-faceted approach.
Corporate approaches to climate have typically developed in parallel, from one another. Yet each area affects the others in multiple ways. To fully respond to the challenges arising from COP26 and beyond, businesses need to view climate through a strategic lens:
Do your current environmental, social and governance (ESG) systems show interdependencies across the three spheres?
Does climate data flow into one centralized location, enabling the most important priorities to rise to the surface of the board agenda?
Is the board able to quickly visualize climate impacts, for swift identification and resolution of issues?
Robotic process automation (RPA) can help boards collect data, expand reporting and connect the dots in the wake of COP26. Learn more in “Meeting Climate Reporting Expectations: A Roadmap to Robotic Process Automation.”